FORM 10-QSB - QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-18184
SK Technologies Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1507455
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 Fairway Drive, Suite 104, Deerfield Beach, FL 33441
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(Address of principal executive offices)
(954) 418-0101
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(Issuer's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date.
Common Stock, $.001 Par Value = 6,357,828 shares as of July
31, 1997.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
THREE MONTHS ENDED June 30, 1997
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements . . . . . . . . . . . 1
Consolidated Condensed Balance Sheet . . . 2-3
Consolidated Condensed Statements of
Operations . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of
Cash Flows . . . . . . . . . . . . . . 5
Notes to the Consolidated Condensed
Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities . . . . . 9
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial information included herein is
unaudited. Certain information and footnote disclosures
normally included in the financial statements have been
condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures made
are adequate to make the information presented not
misleading. These financial statements should be read in
conjunction with the financial statements and related
notes contained in the Company's 1997 Annual Report on
Form 10-KSB. Other than indicated herein, there have
been no significant changes from the financial data
published in said report. In the opinion of management,
such unaudited information reflects all adjustments,
consisting only of normal recurring accruals and other
adjustments as disclosed herein, necessary for a fair
presentation of the unaudited information below.
Results for interim periods are not necessarily
indicative of results expected for the full year.
Certain amounts in the prior periods' consolidated
financial statements have been reclassified to conform
to the current periods' presentation. These
reclassifications do not materially impact the prior
periods' consolidated financial statements.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1997
ASSETS
Current Assets:
Cash $ 86,991
Trade accounts receivable, net of
allowance for doubtful accounts
of $38,486 36,223
Inventories 20,969
Other current assets 1,621
Current portion of installment
accounts receivable 60,000
---------
Total Current Assets 205,804
Property and Equipment, Net 109,715
Other Assets:
Software development costs,
net of accumulated amortization
of $460,489 440,223
Other, net 22,682
Installment accounts receivable,
less current portion 55,000
---------
Total Other Assets 517,905
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$ 833,424
=========
(Continued on following page)
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
June 30, 1997
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 46,896
Accrued expenses 108,693
Due to shareholders/officers/directors 1,214,226
Current portion of capital lease
obligations 17,010
Deferred income 113,212
Loans payable shareholders/directors 3,190,500
-----------
Total Current Liabilities 4,690,537
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 92,257
Capital lease obligations, less current
portion 20,196
Capital Deficiency:
Convertible Preferred Stock, $.001
par value, 5,000,000 shares
authorized, 1,000,000 shares
designated as convertible Series B
Preferred Stock, 488,399 shares
issued and outstanding 488
Common stock, $.001 par value,
25,000,000 shares authorized,
6,323,828 shares issued and
outstanding 6,324
Additional paid-in capital 12,117,031
Accumulated deficit (16,493,409)
-----------
Capital Deficiency (4,369,566)
-----------
$ 833,424
===========
See accompanying notes.
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Equipment, software sales and
support $ 236,389 $ 193,149
Cost of Revenues:
Cost of equipment sold 25,877 24,301
Amortization of software development
costs 59,611 32,619
Research and development expenses 24,061 47,599
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109,549 104,519
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Gross Profit 126,840 88,630
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 282,195 271,499
Other selling, general and
administrative expenses 103,264 202,219
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385,459 473,718
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Operating loss (258,619) (385,088)
Other (Expenses) Income:
Gross profit on installment sale 48,134 -
Interest expense (89,487) (72,690)
Other, net 1,413 10,225
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Total Other Expenses (39,940) (62,465)
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Net loss $ (298,559) $ (447,553)
============ ===========
Loss per common share $ (.05) $ (.07)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,278,041 6,098,773
See accompanying notes.
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</TABLE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Net cash used in operating activities $ (81,286) $ (334,123)
Cash Flows From Investing Activities:
Additions to software development costs (48,744) (69,349)
Purchases of property and equipment (3,865) -
Net (increase) decrease in other assets (52,476) 7,866
Proceeds from sale of property - 234,841
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Net cash (used in) provided by
investing activities (105,085) 173,358
Cash Flows From Financing Activities:
Proceeds from loans from shareholders/directors 172,500 435,000
Principal payments on bank mortgages - (200,377)
Principal payments on notes payable to
related parties/shareholders - (2,525)
Principal payments on capital lease obligations (2,454) (3,178)
---------- -----------
Net cash provided by financing
activities 170,046 228,920
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(Decrease) increase in cash (16,325) 68,155
Cash at beginning of period 103,316 74,531
---------- -----------
Cash at end of period $ 86,991 $ 142,686
=========== ===========
See accompanying notes.
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</TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1997
Note 1 - ACCOUNTS RECEIVABLE - INSTALLMENT SALE
On May 21, 1997 the Company entered into an Asset Purchase Agreement
(the "Agreement") with an unrelated party (the "Buyer"), whereby the Buyer
acquired from the Company, the StoreKare Software for Subway (including
the software source code) and certain other related assets. The Company
will receive a minimum of $175,000 of which $55,000 was received upon
signing the Agreement. The Company will receive 24 monthly payments of,
the greater of $5,000 or 10% of gross sales of the Buyer, of any software
that is an associative or derivative of the software for Subway. The sale
is recorded as an installment sale with revenues recognized over 24 months
as cash is received. The Company recognized gross profit of $48,134
during the three months ended June 30, 1997 as reflected on the Statement
of Operations. At June 30, 1997 the Balance Sheet reflects installment
accounts receivable of $115,000 and deferred gross profit of $92,257 from
this sale.
Note 2 - LOANS PAYABLE SHAREHOLDERS/DIRECTORS
Two shareholders/directors of the Company and their related entities
have provided short term financing to the Company totalling $3,190,500
through June 30, 1997 of which $172,500 was received during the three
months ended June 30, 1997. Additional loans of $70,000 were made to the
Company in July 1997. These loans accrue interest at the rate of 10% per
annum, $420,771 has been accrued through June 30, 1997 of which $77,728
was accrued during the three months ended June 30, 1997. In December
1996, the Company collateralized these loans with the StoreKare software
and documentation.
Note 3 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of maintenance and support revenues of
$21,529, as such revenue is recognized ratably over the term of the
contract, and a $91,683 prepayment from an unrelated party for products to
be shipped to resellers of this unrelated party with revenues to be
recognized as such products are shipped. Pursuant to a 1994 agreement
between the Company and this unrelated party, this party agreed to
purchase products from the Company to a value of $500,000 with a provision
for quarterly payments. At June 30, 1997, $367,573 is due to the Company
pursuant to this agreement but is not included in the consolidated balance
sheet at June 30, 1997 since the party has notified the Company of its
intention to terminate the agreement. On October 18, 1996 the Company
filed a Demand for Arbitration in regard to this agreement.
NOTE 4 - LIQUIDITY
Through June 30, 1997, the Company has incurred significant
operating losses and has a working capital deficiency. Since March 1995
through July 31, 1997 two majority shareholders/directors of the Company
and their related entities have provided funding to the Company in the
form of loans totalling $3,260,500 of which $172,500 was received during
the three months ended June 30, 1997 and $70,000 was received in July
1997. These loans are due on demand. If additional funding is not
obtained from these two shareholders/directors and their related entities,
through an offering or alternate sources of funding, of which none have
presently been identified, the Company would have to curtail operations
and/or take other actions.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
General
The Company is engaged in developing, manufacturing and marketing
point-of-sale and store management software for general and specialty
retailers (hard and soft goods merchants).
The goal of the Company has been to design feature-rich, flexible,
simple and yet affordable software, that a retail store owner with limited
computer experience could learn and use without extensive training and
support. The result of that goal is the Company's StoreKare product
family, a series of proprietary software modules, that provide the
required information processing for a wide range of retail operations.
Except for historical information contained herein, certain matters
set forth in this Form 10-QSB are forward looking and involve a number of
risks and uncertainties that could cause future results to differ
materially from these statements and trends. Such factors include but are
not limited to, significant changes in economic conditions, competition in
the Company's markets, changes in technology and the continued
availability of funding from third parties.
Liquidity and Capital Resources
The Company sustained a net loss of $298,559 and $447,553 for the
three months ended June 30, 1997 and 1996, respectively. The Company's
working capital deficiency increased from $(4,267,106) at March 31, 1997
to $(4,484,733) at June 30, 1997. This increase was mainly due to the
receipt of short term loans of $172,500 and the related interest of
$77,728 accrued during the three months ended June 30, 1997, from two
shareholders/directors and their related entities.
During the three months ended June 30, 1997 and 1996, the Company
capitalized $48,743 and $69,349, of development costs. Amortization of
development costs was $59,611 and $32,619, for the three months ended June
30, 1997 and 1996, respectively. The Company, subject to the availability
of working capital, anticipates incurring a comparable amount of
development costs for the remainder of fiscal 1998 as it continues to
develop new features for the StoreKare retail point-of-sale and back
office module products and continues the development of new StoreKare
Windows/NT based product.
The Company is continuing to cultivate its reseller base by
providing the resellers with support, training and the tools and
incentives to sell the product on behalf of the Company. The Company's
region managers support the existing resellers and pursue opportunities to
recruit new resellers. In addition the region managers are seeking to
sell and support the Company's products directly to retail chains, co-ops,
and franchises as customers. The Company intends to complete development
projects which are currently in process and implement its plans to develop
new technology if financing is secured to meet the Company's long term
capital needs. In May 1997 the Company sold the StoreKare for Subway
software and related assets to an unrelated party and discontinued sales
to Subway Sandwich and Salads fast food restaurants.
Through June 30, 1997, the Company has incurred significant
operating losses and has a working capital deficiency. Since March 1995
through July 31, 1997 two majority shareholders/directors and their
related entities have provided funding to the Company in the form of loans
totalling $3,260,500, of which $172,500 was received during the three
months ended June 30, 1997 and $70,000 was received in July 1997. The
loans are due on demand and accrue interest at 10% per annum. Through
June 30, 1997 interest in the amount of $420,771 has been accrued on these
loans, of which $77,728 was accrued during the three months ended June 30,
1997. These two shareholders/directors are actively involved with
management of the Company. While no assurance can be made, the Company
believes that these shareholders/directors and their related entities will
continue to fund the Company. However, if additional funding is not
obtained from these shareholders/directors and their related entities, the
Company would have to seek other sources of funding of which none have
presently been identified, or the Company would have to curtail operations
and/or take other actions.
- 7 -
Results of Operations
For the three months ended June 30, 1997 and 1996, the Company
reported a net loss of $298,559 and $447,553, respectively. Revenues for
the three months ended June 30, 1997 were $236,389 and $193,149 from
equipment and software sales and support.
Amortization of software development costs was $59,611 and $32,619,
for the three months ended June 30, 1997 and 1996 respectively. In
addition, the Company expensed $24,061 and $47,599, respectively of
research and development costs during the three months ended June 30, 1997
and 1996, respectively.
Total selling, general and administrative expenses decreased from
$473,718 to $385,459 for the three months ended June 30, 1996 and 1997,
respectively. There was a decrease of 49% in other selling, general and
administrative expenses, which can be attributed to a reduction in
consulting, legal and other fees, travel, telephone expenses and other
overhead costs. The Company anticipates that total selling, general and
administrative expenses for the remainder of fiscal 1998 will remain
consistent with the first quarter of fiscal 1998.
The Company incurred interest expense of $89,487 and $72,690, during
the three months ended June 30, 1997 and 1996 respectively. Interest
expense was incurred on loans from shareholders/directors, of $77,728 and
$50,079, during the three months ended June 30, 1997 and 1996,
respectively. As of June 30, 1997 and 1996, loans from
shareholders/directors were $3,190,500 and $2,215,000 respectively.
Seasonality
The Company believes that seasonality has not historically had any
material impact on its business. However, during the winter holiday
season retail businesses typically delay the installation and/or purchase
of any capital assets such as our Storekare products.
- 8 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
On July 1, 1997 and as amended on July 11, 1997, the Company filed
a Form S-8 to register 1,400,000 shares of Common Stock which may be
issued pursuant to the exercise of options granted under the 1995
Company Stock Option Plan.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the quarterly period ended
June 30, 1997.
b) Reports on Form 8-K
On June 4, 1997 the Company filed a report on Form 8-K with
the Securities and Exchange Commission. Such Form 8-K
reported the following:
On May 21, 1997 the Company entered into an Asset Purchase
Agreement with an unrelated party (the "Buyer"), whereby the
Buyer acquired from the Company, the StoreKare Software for
Subway (including the software source code) and certain other
related assets.
- 9 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
SK Technologies Corporation has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SK Technologies Corporation
(Registrant)
Date: August 14, 1997 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: August 14, 1997 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 86,991
<SECURITIES> 0
<RECEIVABLES> 74,709
<ALLOWANCES> 38,486
<INVENTORY> 20,969
<CURRENT-ASSETS> 205,804
<PP&E> 325,873
<DEPRECIATION> 216,158
<TOTAL-ASSETS> 833,424
<CURRENT-LIABILITIES> 4,690,537
<BONDS> 420,196
488
0
<COMMON> 6,324
<OTHER-SE> (4,376,378)
<TOTAL-LIABILITY-AND-EQUITY> 833,424
<SALES> 236,389
<TOTAL-REVENUES> 236,389
<CGS> 25,877
<TOTAL-COSTS> 109,549
<OTHER-EXPENSES> 385,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,487
<INCOME-PRETAX> (298,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (258,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (298,559)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
